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32 Cards in this Set
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 Back
Price Elasticity of Demand
Perfectly Elastic 
Magnitude: Infinity
The smallest possible increase in price causes an infinitely large decrease in the quanitity demanded 
Price Elasticity of Demand
Elastic 
Magnitude: Less than infinity but not greater than 1
The percentage decrease in the quantity demanded exceeds the percentage increase in price 
Price Elasticity of Demand
Unit Elastic 
Magnitude: 1
The percentage decrease in teh quantity demanded equals the percentage increase in price 
Price Elasticity of Demand
Inelastic 
Magnitude: Greater than zero but less than 1
The percentage decrease in teh quantity demanded is less than the percentage increase in price 
Price Elasticity of Demand
Perfectly inelastic 
Magnitude: zero
The quantity demanded is the same at all prices 
Cross Elasticities of Demand
Close Substitutes 
Value: Large
The smallest possible increase in teh price of one good causes an infinitely large increase in the quantity demanded of the other good 
Cross Elasticities of Demand
Substitutes 
Value: Positive
If the price of one good increases, the quantity demanded of the other good also increases 
Cross Elasticities of Demand
Unrelated Goods 
Value: Zero
If the price off one good increases, the quantity demanded of the other good remains the same 
Cross Elasticities of Demand
Complements 
Value: Negative
If the price of one good increases, the quantity demanded of the other good decreases 
Income Elasticities of Demand
Income elastic (normal good) 
Value: Greater than 1
The percentage increase in the quantity demanded is greater than the percentage increase in income 
Income Elasticities of Demand
Income inelastic (normal good) 
Value: Less than 1 but greater than zero
The percentage increase in the quantity demanded is less than the percentage increase in the income 
Income Elasticities of Demand
Negative income elastic (inferior good) 
Value: Less than zero
When income increases, quantity demanded decreases 
Elasticities of Supply
Perfectly elastic 
Magnitude: Infinity
The smallest possible increase in price causes an infitely large increase in the quanntity supplied 
Elasticities of Supply
Elastic 
Magnitude: Less than infinity but greater than 1
The percentage increase in the quantity supplied exceeds the percentage increase in teh price 
Elasticities of Supply
Inelastic 
Magnitude: Greater than zero but less than 1
the percentage increase in teh quantity supplied is less than the percentage increase in the price 
Elasticities of Supply
Perfectly inelastic 
Magnitude: zero
The quantity supplied isthe same at all prices 
Elasticity

the measure of the responsiveness of the quantity demanded of a good to a change in its price, other things remaining the same.

Price elasticity of demand

equals the percentage change in the quantity demanded divided by the percentage chang in price.

Magnitude of price elasticity

the large the magnitude of the price elasticity of demand, the greater is the responsiveness of the quantity demanded to a given change in price.

Price elasticity of demand

depends on how easily one good sersves as a substitute for another, the proportion of income spent on the good, and the length of time elapsed since the price change.

If demand is elastic

a decrease in price leads to an increase in total revenue. If demand is unit elastic, a decrease in price leaves total revenue unchanged. And if demand is inelastic, a decrease in price leads to a decrease in total revenue.

Cross elasticity of demand

measures the repsonsiveness of demand for one good to a change in the price of a substitute or a complement, other things remaining the same

The cross elasticity of demand

with respect to the rpice of a substitute is prositive, hte cross elasticity of demand with respect to the price of a complement is negative

Income elasticity of demand

measures the repsonsiveness of demand toa change in income, other things remaining the same, for a normal good, the income elasticity of demand is positive, for an inferior good, the income elasticity of demand is negative.

Income elasticity of demand

when the income elasticity of demand is greater than 1 (income elastic), the percentage of income spent on the good increases as income increases.

Income elasticity of demand

when the income elasticity of demand is less than 1 (income inelastic and inferior), the percentage of income spent on the good decreases as income increases.

Elasticity of supply

measures the responsiveness of the quantity supplied of a god to a change in its price.

Elasticity of supply

the elasticity of supply is usually positive and ranges between zero (vertical supply curve) and infinity (horizontal supply curve).

Supply decisions

have three time frames:
momentary long run and short run 
Momentary Supply

refers to the response of sellers toa price change at the instant that the price changes.

Longrun supply

refers to the response of sellers toa price change when all the technologically feasible adjustments in prodicion have been made.

Shortrun supply

refers to the response of sellers toa price change after some of the technologically feasible adjustments in production have been made.
